required to be cleared must be submitted to a DCO.'? CME believes it would be helpful for the
Department to include in the preamble to the final regulation a statement or footnote
acknowledging that the swaps carve-out applies equally to investment advice rendered by swaps
counterparties in connection with cleared swaps and cleared security-based swaps, as well as
uncleared swaps and uncleared security-based swaps.

ae Recommendations, valuations and other communications made in connection with the
provision of clearing firm services should not be considered investment advice.

A. The “swaps carve-out” should be expanded to cover investment advice rendered
by a clearing firm in connection with the provision of services related to swap and
security-based swap transactions.

The swaps carve-out should be expanded to include investment advice rendered by a clearing
firm'? in connection with the furnishing of swap and security-based swap services to Benefit
Plan Investors. As the Department recognized in AO 2013-01A, “under the Dodd-Frank Act, the
Clearing Member has a prescribed role within the swaps clearing framework that requires it to
enter into agreements with customers that give it broad discretion to make margin calls, to call
defaults and to close out a customer’s position as needed to protect the Clearing Member’s own
interests, the interests of the CCP and the interests of its other customers.” In connection with
this role, it is common for a clearing firm to provide its customers with information, such as
valuations, pricing and liquidity information, that is important to customers in deciding whether
to execute, maintain or liquidate swaps positions or, as the security-based swap market develops,
security-based swaps positions, or the collateral supporting these positions. If clearing firms are
deterred from providing these services due to the risk of being deemed a fiduciary, customers
will receive less information, make less-informed decisions, thereby creating greater risks for
clearing firms in guaranteeing their customers. As a result, the clearing role considered
important to Congress in mandating clearing and execution will be compromised. Accordingly,
CME asks the Department to revise the language of the swaps carve-out in a manner
substantially similar to the revisions proposed by the Securities Industry and Financial Markets
Association (“SIFMA”) and the Futures Industry Association (“FIA”) in their respective
comment letters.'

See CEA Section 2(h)(1). Likewise, any swap required to be cleared also must be executed on a SEF or DCM
unless no SEF or DCM makes the swap available to trade. See CEA Section 2(h)(8). Dodd-Frank added
substantially similar provisions to the Securities Exchange Act for security-based swaps, although the SEC has
not yet implemented a clearing mandate or a trade execution requirement for security-based swaps. See Section
3C of the Exchange Act, 15 U.S.C. 78c-3.

Clearing firms that clear swaps or security-based swaps for customers generally must be CFTC-registered
futures commission merchants or SEC-registered broker-dealers.

See Letter from Lisa J. Bleier, Managing Director, Federal Government Relations, and Associate General
Counsel, Securities Industry and Financial Markets Association, to Office of Regulations and Interpretations,
Employee Benefits Security Administration, p. 45 (July 20, 2015) (the “SIFMA Comment Letter”); Letter from
Allison Lurton, Senior Vice President and General Account, Futures Industry Association, to Office of
Exemption Determinations, Employee Benefits Security Administration, pp. 7-8 (July 21, 2015) (the “FIA
Comment Letter”).

5

530 West Washington Blvd. Chicago, IL. 60661 1312634 1592 sunil cutinho@cmegroup.com


counterparties, such communications are made in furtherance of operating the clearinghouse or
are factual in nature; they have nothing to do with providing investment advice or otherwise
acting in a fiduciary capacity. Indeed, the industry does not view a CCP’s role in clearing, even
where the CCP technically is the counterparty to a Benefit Plan Investor, to involve the exercise
of any fiduciary authority, and does not consider a CCP’s communications in connection with
the performance of its customary functions to constitute the rendering of investment advice.

This view is supported by the Department’s recognition that “[i]t does not appear... that
Congress contemplated that .... CCPs would act as ERISA fiduciaries with respect to plan
customers.” The Department has also taken the view in connection with cleared swaps “that the
CCP does not provide services to the plan, and will not be deemed to be a party in interest with
respect to the plan solely by reason of providing clearing services for the plan’s Clearing
Members.”® These views echo the Department’s earlier conclusion that, in the context of futures
transactions, a CCP would not be considered to provide services to a plan investor.’

In light of the views reflected in the Department's previous guidance regarding futures and
cleared swaps transactions, CME does not believe that any changes are required to the proposed
regulations to address CCP functions. However, in the absence of any discussion in the
proposed rule of the role CCPs play in swaps or futures clearing, CME requests that in the
preamble to the final rule the Department include a reference to the Department’s previous
guidance, which will serve to confirm that, consistent with such guidance, the Department does
not consider a CCP to be acting as a fiduciary in connection with the performance of its
customary functions.

Di The “swaps carve-out” applies to investment advice rendered by swap counterparties in
connection with cleared swaps and cleared security-based swaps.

We understand from conversations with Department staff that the “swaps carve-out” is intended
to apply equally to investment advice rendered by swap counterparties in connection with swaps
and security-based swaps whether cleared or uncleared.'°

The Department’s views regarding cleared swaps, as set forth in AO 2013-01A, are consistent
with the purpose of the regulatory framework enacted in Dodd-Frank for both swaps and
security-based swaps — to reduce risk, increase transparency, and promote market integrity.'!
One of the hallmark requirements of Dodd-Frank is that any swap that the CFTC determines is

7 AO 2013-01A.

Sid.

See AO 82-49.

Although the swaps carve-out, as presently worded, would apply only to swap and security-based swap

transactions involving ERISA Plans, CME believes that this carve-out should be available for transactions
involving any Benefit Plan Investor eligible to enter into a swap or security-based swap.

"See AO-2013-A.

4

530 West Washington Blvd. Chicago, IL. 60661 312.634 1592. sunil.cutinho@cmegroup com


B. The “counterparty carve-out” should be expanded to cover investment advice
rendered by a clearing firm in connection with the provision of its services and in
connection with the marketing of its own services.

The counterparty carve-out should be expanded to include investment advice rendered by a
clearing firm to a Benefit Plan Investor or its fiduciary in connection with the provision of its
services and in connection with the marketing of its own services.'> Unless such
communications are carved out of the “investment advice” definition, there will be a risk that
clearing firms will be considered plan fiduciaries by virtue of engaging in routine
communications with current or prospective Benefit Plan Investor clients. At the same time, the
conditions in the Proposed Rule that are imposed on the use of the counterparty carve-out should
be reviewed and pared down. For example, a clearing firm intending to qualify for the carve-out
should not be required to obtain new representations from, or refresh its diligence of, a Benefit
Plan Investor counterparty on a trade-by-trade basis, which could result in considerably slower
execution of transactions, diminishing the ability of Benefit Plan Investors to compete in the
derivatives marketplace. Accordingly, CME asks the Department to revise the language of the
counterparty carve-out in a manner substantially similar to the revisions proposed by SIFMA and
FIA in their respective comment letters.'°

4, The valuation prong of the “investment advice” definition should be excluded from the
final regulatio

CME asks the Department to reconsider the valuation prong of the investment advice definition
as it relates to the provision of valuations, quotes and current values with respect to futures,
swaps and security-based swaps. Such information is routinely provided by CCPs, SEFs,'7
DCMs'* and clearing firms and no market participant would consider this information to
constitute investment advice. Recognizing the many other comments the Department has
received, CME requests that the Department refrain from including a valuation prong in the final
regulation.

Although the counterparty carve-out, as presently worded, would apply only to transactions involving ERISA
Plans that cover 100 or more participants or represented by an independent plan fiduciary that manages at least
$100 million in ERISA Plan assets, CME believes that this carve-out should be available for transactions
involving any Benefit Plan Investor represented by a sophisticated independent fiduciary, including Plan Asset
Entities managed by a “qualified professional assets manager” (as defined in DOL Prohibited Transaction Class
Exemption 84-14) or an “in-house asset manager” (as defined in DOL Prohibited Transaction Class Exemption
96-23) and self-directed IRAs whose beneficial owners are high net worth individuals.

See SIFMA Comment Letter at p. 44; FIA Comment Letter at p. 5.

SEFs are CFTC-registered trading platforms that provide pre-trade information and an execution facility for
swaps among the participants of the SEF.

DCMs are the traditional exchanges on which futures must be traded. The Dodd-Frank Act also allows DCMs
to make swaps available to trade.

550 West Wa

¥ 312.634 1592. sunil cutinho@emegroup com


43 CME Group a

September 24, 2015
By U.S. Mail and Email: e-ORI@dol.gov; e-OED@dol.gov

Office of Regulations and Interpretations
Employee Benefits Security Administration
Attn: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, N.W.
Washington, D.C. 20210

Office of Exemption Determinations
Employee Benefits Security Administration
(Attention: D-11712)

U.S. Department of Labor

200 Constitution Avenue NW.

Suite 400

Washington DC 20210

Re: — RIN 1210-AB32: Proposed Definition of the Term “Fiduciary”;
ZRIN 1210-ZA25: Proposed Best Interest Contract Exemption

CME Group Ine. (“CME Group”) appreciates the opportunity to comment on the Department of
Labor’s (“Department” or “DOL”) proposed regulation (the “Proposed Regulation”) under the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that will redefine
the term “fiduciary” under section 3(21) of ERISA and section 4975(e) of the Internal Revenue
Code of 1986, as amended (the “Code”), as well as the proposed “best interest contract”
prohibited transaction class exemption (the “Best Interest Contract Exemption”).

CME Group is the parent of Chicago Mercantile Exchange Inc. (“CME”). CME is one of the
largest central counterparties (“CCP”) in the world and is registered with the Commodity Futures
Trading Commission (“CFTC”) as a derivatives clearing organization (“DCO”) and with the
Securities and Exchange Commission (“SEC”) as a clearing agency. CME Group, through
CME’s clearing house division (“CME Clearing”), presently offers clearing and settlement
services for exchange-traded futures contracts as well as over-the-counter (“OTC”) derivatives
transactions, including interest rate swaps (“IRS”) and index credit default swaps (“CDS”).

CME appreciates the efforts of the Department and its staff through the years to formalize its
recognition of the limited application of ERISA in the context of cleared derivatives, in

530 West Washington Blvd. Chicago, IL 60661 1312 634 1592 sunil.cutinho@



5. The relief provided under the Best Interest Contract Exemption should be expanded to
cover receipt of commissions and similar compensation for services provided by
investment advice fiduciaries and related parties in connection with investments by retail
retirement investor clients in exchange-traded futures, exchange-traded options on
futures, cleared swaps and cleared security-based swaps.

The Best Interest Contract Exemption, as proposed, would apply to the receipt of commissions
and similar compensation for services provided by an investment advice fiduciary and related
parties in connection with the “purchase, sale or holding of an Asset” by a retail retirement
investor client.'? The term “Asset” has been defined for purposes of the Best Interest Contract
Exemption to include only specified investment products. CME believes that the range of
investment options included within the proposed “Asset” definition is too narrow and would
exclude investments that may be beneficial to retail retirement investors. In particular, the
process of centrally clearing transactions, such as exchange-traded futures, exchange-traded
options on futures, cleared swaps and cleared security-based swaps fosters liquidity and
facilitates the ability to mitigate interest-rate risk and various other risks associated with
investments commonly held by Benefit Plan Investors. Accordingly, CME requests that the
Department revise the definition of “Asset” to include such investments.

CME Group thanks the Department for the opportunity to comment on this matter. Should you
have any comments or questions regarding this letter, please contact me by telephone at 312-
634-1592, or email at sunil.cutinho@cmegroup.com.

Sincerely,

Sunil Cutinho

Senior Managing Director and President
CME Clearing

'° For purposes of the Best Interest Contract Exemption, a retail retirement investor is an IRA, a participant or

beneficiary of an ERISA Plan that provides for participant-directed investors, and a plan sponsor acting as
fiduciary of a non-participant directed ERISA Plan with fewer than 100 participants.

7

550 West Washington Blvd Chicago, IL 60661 1312634 1592 sunil cutinho@emegroup com


particular, futures contracts and cleared swaps.' CME also appreciates the Department’s interest
in providing a carve-out from the definition of “investment advice” in the Proposed Regulation”
for advice provided by a counterparty in connection with a “swap” or “security-based swap,” as
defined in the Commodity Exchange Act (“CEA”) and Securities and Exchange Act of 1934
(“Exchange Act”), respectively. However, CME is concerned that without certain revisions and
clarifications, the Proposed Regulation, if adopted, could create uncertainty with regard to the
fiduciary status of various regulated entities involved in cleared transactions. In addition, CME
appreciates the Department’s interest in providing an exemption from the prohibited transaction
rules under ERISA and section 4975 of the Code to permit investment advice fiduciaries and
related parties to receive commissions and similar compensation for services provided in
connection with certain investment transactions entered into by retail retirement investor clients,
but is concerned that the class of investment transactions to which the Best Interest Contract

Exemption would apply has been drawn too narrowly and would exclude certain investment
transactions beneficial to such investors.

In order to address these concerns, CME respectfully requests that the Department make the
following clarifications and revisions in the final rulemaking:

I Include in the preamble to the final regulation a statement that the Department
does not consider a CCP to be acting as a fiduciary in connection with the
performance of its customary functions, making reference to the Department’s
prior guidance regarding futures and cleared swap transactions;

2. Include in the preamble to the final regulation a statement confirming that the
“swaps carve-out” applies to investment advice rendered by swap counterparties
in connection with both cleared and uncleared swaps and security-based swaps;

3 Preserve certainty with respect to the non-fiduciary status of clearing firms by:

(A) expanding the swaps carve-out to apply to the rendering of investment
advice by clearing firms in connection with the execution and clearing of
swaps and security-based swaps; and

(B) expanding the “counterparty carve-out” under paragraph (b)(1)(i) of the
Proposed Regulation to apply to investment advice rendered by a clearing

firm in connection with the provision of its services and the marketing of
its own services;

4, Refrain from including any “valuation prong” in the investment advice definition,
thereby ensuring that the provision of valuations, quotes and/or current values
with respect to cleared products by CCPs, swap execution facilities (each, a

' See DOL Advisory Opinion 82-49A (Sept. 2, 1982) (“AO 92-49A”); DOL Advisory Opinion 2013-01A (Feb. 7,

2013) (“AO 2013-01A”).

Proposed Regulation j (b)(1)(ii), 80 Fed. Reg. 21,957 (Apr. 20, 2015).

550 West Washington Blvd. Chicago, 11. 60661 131

sunil cutinho@emeg



“SEF”), designated contract markets (each, a ““DCM”) and clearing members is
not treated as investment advice; and

5: Expand the relief provided under the Best Interest Contract Exemption to cover
receipt of compensation for services rendered in connection with investments by
retail retirement investor clients in exchange-traded futures, exchange-traded
options on futures, cleared swaps and cleared security-based swaps.

1. A CCP does not act as a fiduciary in connection with the performance of its customary
functions.

Most market participants assume that a CCP would not be considered a plan fiduciary as a result
of accepting a product for clearing on behalf of an employee benefit plan subject to ERISA (an
“ERISA Plan”), an individual retirement account (“IRA”), or an entity whose underlying assets
are deemed to constitute “plan assets” of one or more ERISA Plans or IRAs pursuant to section
3(42) of ERISA and DOL Regulation §2510.3-101 (a “Plan Asset Entity,” and each such ERISA
Plan, IRA or Plan Asset Entity, a “Benefit Plan Investor”). In the Department’s own words, a
CCP’s clearing function (in the context of swaps) works as follows: “Upon acceptance of a swap
by the CCP for clearing, the original swap is extinguished, and is replaced by an equal and
opposite swap between the CCP and each Clearing Member acting as principal for a house trade
or acting as agent for a customer trade” and that “the CCP is technically the counterparty to the
defaulting customer ... > Likewise, in the context of futures, the Department has long
recognized the role of a CCP, noting that “the respective long and short [futures] positions are
cleared through a clearing organization” and that the “clearing process severs the relationship
between the original traders...”

While it is true that a CCP becomes the counterparty to a Benefit Plan Investor once a product is
accepted for clearing, this is simply a function of the mechanics of clearing, which is required for
most swaps (by notional value) and all futures contracts executed in the U.S.° By accepting a
swap or futures contract for clearing, a CCP does not provide any investment advice or negotiate
the terms of the trade. In the context of futures and swaps, the majority of CCP communications
made in the course of serving the central clearing function and any ancillary roles® are
communications with the clearing members of the CCP, as opposed to communications directly
with their customers who are the ultimate counterparties to the cleared swaps or futures
contracts. In the instances when a CCP might communicate directly with ultimate

* 40 2013-01A.
* AO 82-49A.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),
certain standardized IRS and CDS are currently required to be cleared by a CCP registered as a DCO with the
CFTC. See CEA section 2(h) and Part 50 of the CFTC’s regulations.

The customary functions of the CCP have expanded over time to include: transaction processing, post-trade
management functions, financial management of members’ collateral deposits, final settlement of outstanding
obligations through financial payment or physical delivery, overall risk management of market participants,
guaranteeing the performance of its contracts, and educating investors on the workings of the clearinghouse.

550) West Washington Blvd. Chicago. IL. 60661 13

1592. sunil.cutinhod@emegroup.